The following paper was presented at the WEAO 2019 Annual Conference in Toronto, Ontario. A pdf version is available here. The slide presentation is included at the bottom of this post.
A note to TRIECA 2019 attendees where these results were highlighted: the Strategies A, B and C in the TRIECA presentation correspond to Strategies A, C, and D below:
AN ECONOMIC ANALYSIS OF GREEN V. GREY INFRASTRUCTURE
Robert J. Muir, M.A.Sc., P.Eng., Fabian Papa, M.A.Sc., M.B.A., P.Eng.
INTRODUCTION
There
is much healthy debate in the industry relating to the implementation of green
infrastructure solutions for managing stormwater runoff and which is not
uncommon when there are changes to traditionally employed methods. A rational
approach to assist in the planning for the type of storm drainage infrastructure
– that is, green or grey in the context of this paper – that might be
appropriate to implement should incorporate measurements (or reasonably
reliable estimates) of both performance (benefits) and costs over an
appropriate time horizon.
This
paper examines, at a high level, the benefits derived from both green and grey
infrastructure relative to their associated costs to identify the economic
return on investment as measured by benefit-cost ratios. The analysis uses
actual cost information (including capital as well as ongoing maintenance
costs) derived from projects in both Canada and the US. Benefits
considered include avoided damages (both insured losses and total losses) and,
particularly for the case of green infrastructure, the additional benefits of
reduced erosion mitigation and estimates of willingness to pay for water quality
improvements. Further, the analysis considers a relatively large (City-level)
scale, using the City of Markham as a case study and, as such, provides an
example of the information that can be useful for establishing infrastructure
strategies at that level. Although not explicitly considered in this work, the
philosophy (approach) and methodology remain valid for other levels of analysis
(e.g., Secondary Plans, individual municipal or private sector development
projects, etc.) as well as higher level policy evaluation.
The
following sections present i) a methodology for benefit-cost analysis of
infrastructure strategies, including a history of such analysis and a review of
current practice, and ii) the results of an analysis applying this methodology across
the City of Markham. The analysis
considers flood control benefits derived from reported losses and other watershed
benefits for various strategies including all-grey, all-green and blended
servicing approaches. Conclusions, including considerations for setting public
policy and funding priorities for infrastructure investments are provided.
METHODOLOGY
History
of Benefit-Cost Analysis in Water Resources
There is a long history in benefit-cost analysis for water resources
projects in North America and around the world. Kneese (2000) describes the evolution in the
United States dating back to the beginning of the 20th century when
the Federal Reclamation Act of 1902 required economic analysis of projects, and
1936 when the Flood Control Act established a welfare economics feasibility
test that benefits “to whomsoever they may accrue” must exceed costs. Boz and
Zwaneveld (2017) review a century of benefit-cost analysis applied in the
Netherlands, including in 1901 for the enclosure of the Zuiderzee on the North
Sea. In Canada, the Royal Commission on Flood Cost Benefit for the Red River
Floodway was completed in 1958.
In Hydrology of Floods in Canada, Watt (1989) describes economic
efficiency criteria and principles associated with river flood risk reduction
projects. He notes “It is therefore reasonable to require that all projects
that provide or improve flood protection be justified economically before
public funds are allocated.” Watt adds that “contrary to public opinion, the
direct and indirect benefits of flood control tend to overshadow the intangible
benefits” and therefore “expected benefits should exceed cost by a sufficient
margin and the level of protection should not be pushed beyond the point where
the additional costs exceed the incremental benefit.” As flood control projects
rank high in terms of public welfare, these are often approved even when the
benefit-cost ratio is only marginally higher than unity and occasionally when
it is less than unity.
The principle of cost-effective
infrastructure investment is embedded within the Ontario’s Provincial Policy Statement
(Ontario Ministry of Municipal Affairs and Housing, 2014), which indicates at a
high level that “Infrastructure … shall be provided in a coordinated, efficient
and cost-effective manner.” It is reinforced in new regulations which requires
that “[for] each asset category, the lifecycle activities that would need to be
undertaken to maintain the current levels of service” must be determined in
municipal asset management plans (Ontario Ministry of Economic Development,
Employment, and Infrastructure, 2017). Furthermore, these activities must
consider “the lowest cost to maintain the current levels of service.”
An evaluation of project costs is required
as part of local studies involving flood control, such as through Ontario
Municipal Class Environmental Assessments (Municipal Engineers Association, 2015).
Despite this, formal benefit-cost analysis is uncommon in practice, often as
projects are implemented to meet specific performance standards, or are
selected based on comparative alternative costs, as opposed to any overall
cost-efficiency goal. The City of Stratford Storm System Master Plan (Dillon
Consulting Limited, 2004) demonstrated that benefit-cost ratios could be
developed on a sewershed scale to assess the feasibility of infrastructure
improvements, and to guide and prioritize further studies for flood damage
reduction project implementation. Benefit-cost
analysis may be completed for large-scale flood control projects where
significant costs for strategically critical regional projects attract public
scrutiny. For example, the Springbank flood storage project to reduce City of
Calgary river flood damages was recently subject to such analysis (IBI Group,
2015).
Numerous challenges impede benefit-cost
analysis for smaller, local flood control projects. These include i) lack of
regulatory requirement, ii) previously limited availability of flood damage
data (insured and uninsured losses), iii) previously limited availability of
lifecycle costs, especially for emerging green infrastructure measures, iv) the
fragmented nature of small-scale, distributed projects that challenge
system-wide performance/benefit assessment, and v) the sometimes fragmented
jurisdiction for large systems across multiple municipalities. Eckstein (1958), in foundational work on
water resources development economics, noted that system-wide assessments are
necessary for entire programs, such as for river basins, and cited the US Army
Corps of Engineers’ “308 surveys” that developed comprehensive plans for
improving river navigation, power development, flood control and irrigation
nearly a century ago. He suggests that “project benefit-cost ratios are
meaningless and misleading, unless they represent the incremental benefits and
costs of projects in a specified plan of development.”
Current
Approaches to Benefit-Cost Analysis
The Treasury Board of Canada Secretariat (2007)
has developed a guide for benefit-cost analysis of regulatory proposals in
Canada. The guide indicates that “all regulatory departments and agencies are
expected to show that the recommended option maximizes the net economic,
environmental, and social benefits to Canadians, business, and government over
time.” Since regulations surrounding
water resources within a province's boundaries fall within the constitutional
authority of that province, federal guidelines may not apply to most local
water resources projects. This would include most local, municipal
infrastructure projects.
The Disaster Mitigation Adaptation Fund
(DMAF) is a new fund to invest in the public infrastructure needed to mitigate
impacts of climate change and strengthen resilience to natural hazards and
extreme weather events (Infrastructure Canada, 2018). The fund targets moderate to large projects
with a minimum cost of $20 M and requires an assessment of return on investment,
defined as the ratio of total benefits over the project service life to
lifecycle costs. Eligible projects must achieve a ratio of 2:1 or greater.
Benefits represent averted damages and may include any quantifiable
socio-economic and environmental damages.
No guidance is provided on the economic damages that shall be
considered, whether direct or indirect.
National Resources Canada (NRCan) and
Public Safety Canada (PSC) (2017) released draft guidelines on flood
vulnerability functions focused on defining riverine flood damages. The
guidelines suggest three approaches to estimating tangible damages as follows:
“1. The first
entails an examination of the floodplain immediately after the water recedes.
If such estimates were available for every flood over a period of many years, a
damage-frequency curve could be created;
2. An
alternative method is to determine the damage caused by three or four recent
floods whose hydrologic frequency can be determined and a smooth damage
frequency curve plotted through these points; however, for most floodplains,
changes in land use with calendar time prevent direct usage of a
damage-frequency relationship from historical damages; and
3. The
third method entails hydrologically determining various flood elevations for
specific flood frequencies and deducing synthetically the damages that would
occur given these flood events. This analysis provides a synthetic
damage-frequency curve from which one can estimate average annual damages for a
given study area.”
NRCan and PSC commented that the third
method is the “best approach for obtaining accurate and representative
estimates of damages based on current economic factors,” citing changing land
use conditions as a limitation for relying on historical damages, and “large
voids in the data” and insufficient events to rely on the first two
methods. While the third method may be
ideal in terms of accuracy, particularly at a local project scale, at a
planning level where flood mitigation strategies are developed and funding
requirements for asset management and capital improvement plans are set,
sufficient analysis is generally unavailable to support it. The third method may be described as a
‘bottom-up’ property-scale approach where the exposure of individual properties
impacted by a project is assessed. In
contrast, the first and second method represents ‘top-down’ approaches where
aggregated data may be applied over larger planning areas and jurisdictions.
Recently, researchers at the University of
Waterloo’s Intact Centre on Climate Adaptation, the Insurance Bureau of Canada
(IBC) and the International Institute for Sustainable Development presented case studies with comparative costs
and benefit-cost analyses for ‘natural infrastructure’ including engineered green
infrastructure on-site controls, and natural heritage features including wetlands
and naturally occurring ponds (Moudrak et al., 2018). While the report concludes the “Natural
infrastructure can be a cost-effective way to mitigate material financial
losses that would otherwise result from flooding,” the case studies have many
limitations and i) omit benefits of grey infrastructure alternatives,
precluding complete assessments of benefits and costs of all potentially
practical and/or feasible alternatives, ii) substitute one-time capital cost
differences as annual operational services, overestimating expected benefits,
iii) replace published local flood damage benefits with ‘meta-analysis’ (i.e.,
global literature search data), increasing expected benefits, iv) present
atypical watershed settings (e.g., with extensive wetland coverage upstream of
a flooding Special Policy Area) as broad, practically-encountered typical conditions,
v) do not factor averted damages during rare events by their probability,
conflating high event benefits with actual, lower annual benefits, and vi)
apply generic US river flood damage indices to a local, master-planned
subwatershed with no actual riverine flood risks, misrepresenting benefits in
an Ontario setting with advanced floodplain management policies. These research
case studies, while widely promoted in the media, do not follow any of the NRCan
and PSC methods for damage assessment nor offer reliable benefit-cost analysis
considering local data or settings.
Grey
and Green Infrastructure Strategies
For Flood Control and Watershed Restoration
This paper demonstrates the application of
the NRCan and PSC’s second method for flood damage assessment, relying on the
growing set of damage datasets in Canada. It focuses on urban flooding and
basement back-up related to infrastructure system performance, as opposed to
riverine flooding, where property-scale damage estimates are not readily
calculated. This ‘top-down’ region- to neighbourhood-scale approach can support
the development of municipal infrastructure strategies and the overall
evaluation of distributed mitigation measures, including green infrastructure. The incorporation of reported flood damage
data is intended to improve the accuracy of assessments that have sometimes
relied upon limited local modelling or data (i.e., ‘meta-analysis’ and generic
damage indices from other jurisdictions).
As green infrastructure is accepted to contribute to watershed
restoration benefits such as water quality improvements and water
balance/erosion mitigation, these potential benefits are also assessed for a
range of infrastructure strategies in the City of Markham.
Strategies
evaluated are described below and include all-grey, all-green and blended
strategies that consider both city-wide, and more focused local implementation:
i) Strategy
A represents
Markham’s existing Flood Control Program activities, predominantly consisting
of grey infrastructure storm and sanitary sewer conveyance system capacity
upgrades. Best practices and programs for private-side extraneous flow
reduction and plumbing protection are included as well as isolated, centralized
green/natural infrastructure (i.e., centralized wetland). Water quality
retrofits (e.g., oil and grit separation) are included and may represent up to
10% of capital costs.
ii) Strategy
B
represents city-wide implementation of green infrastructure to achieve
watershed benefits (i.e., water quality, water balance and erosion control) and
some degree of expected flood control.
Costs are based on design volumes for small storms (i.e., not flood
control).
iii) Strategy
C
represents focused implementation of green infrastructure in older service
areas (i.e., 25% of the city representing pre-1980 service areas) to achieve
local flood reduction benefits and some watershed benefits. Costs are based on higher volumes than those
adopted for CSO control.
iv) Strategy
D
represents implementation of grey infrastructure in 90% of pre-1980 service
areas and green infrastructure in 10% to achieve flood control benefits.
Watershed benefits will be partially realized.
Grey
infrastructure, including storm and wastewater conveyance and storage upgrades
have served as the traditional engineered approach to providing urban flood
damage mitigation and is recommended in most Municipal Class Environmental
Assessment studies. Green infrastructure
has been proposed recently as an urban flood mitigation measure by some
academics, landscaping professionals and environmental agencies, including many
with long-standing interests in promoting urban revitalization, innovative
adaptive management measures and watershed environmental restoration.
Organizations representing Ontario professional engineers (Ontario Society of
Professional Engineers, OSPE), the wastewater and stormwater industry (Water
Environment Association of Ontario, WEAO), and many Ontario municipalities
(Ottawa, Barrie, Markham, and Guelph to name a few) have commented that green
infrastructure, low impact development stormwater management best management
practices (LID SWM BMPs), may worsen flood risks in some urban areas by
stressing flood prone wastewater systems and property foundations (Muir, 2018d).
Assessment
of Regional and Local Flood Damages
The Insurance Bureau of Canada (IBC) has
compiled insured loss and loss adjustment expense data for across Canada and in
Ontario. This includes total losses from all perils including fire, hail, etc.
and ‘water damage’ losses considering events classified as flood, water, storm or
hurricane perils. The data sources
include detailed CatIQ data for the recent 2008 to 2017 period and various
surveys by IBC for earlier periods. A
review of raw data was completed by City of Markham and included the
reclassification of some peril losses; for example, the 19 August 2005 flood
event was reassigned to the Ontario ‘water damage’ dataset. Ontario water damage losses are illustrated
in Figure 1. Across Canada, the
percentage of losses resulting from water damage has been noted to be
decreasing slightly, declining from 34.0% of losses prior to 2008, to 31.7%
after 2008 (Muir, 2018c).
The US Army Corps of Engineers (US ACE, 1989)
illustrates the analysis approach to determining “expected annual damage” or
EAD. The IBC’s Ontario water damage data is used to develop a probability
distribution of annual losses that can be used to calculate the EAD.
FIGURE 1. Ontario Catastrophic Losses - Water Damage (Flood,
Storm, Hurricane, Water perils)
Cumulative
Damages Prevented by Flood Mitigation Efforts (Benefits)
Cumulative damages prevented over a
project’s service life, representing benefits, may be based on EAD using
insured loss and loss expenses but must also recognize that total uninsured
damages are higher, and that averted damages are less than the total
damages. Swiss Re (2016) notes that while
insured losses include tangible direct damages such as loss of internal and
external contents and structural repairs and cleaning, indirect damages that
may not be insured include tangible indirect costs such as financial losses,
opportunity costs and other clean-up costs. A ratio of total to insured losses
of 1.5 is cited for one extreme flood event in Toronto in July 2013. Meanwhile an
analysis of data from Munich Re’s NatCatSERVICE based on a wider range of hydrological
events in Canada from 1980 to 2017 (Munich Re, 2018) results in a loss-weighted
total to insured loss ratio of 1.8.
Averted damages are less than total damages considering that i) the
design level of service for municipal flood mitigation projects may be less
than the return period of events driving flood losses, ii) private property drainage and plumbing
limitations can contribute to flood damages even after public infrastructure is
upgraded (e.g., Toronto Water (2016) notes "High groundwater and private
side drainage issues a contributing flooding factor"), iii) private
property plumbing protection measures such as backwater valves and sump pumps
may fail to operate due to inadequate maintenance or power interruption, and iv)
lower risk areas may not warrant public infrastructure upgrades based on limited
cost-effectiveness and may continue to have outstanding risks in the future
(Toronto Water, 2018).
For the purpose of the analysis presented in
this paper, it is assumed that higher damages and potential benefits due to
total losses above insured losses, and limitations to averting damages below that
total would negate each other. Therefore, benefits representing averted
damages, a fraction of the total damages, are assumed to equal to insured loss
and loss expenses. While this approach
results in some uncertainty in terms of absolute benefits and benefit-cost ratios,
it does support the comparative evaluation of benefits of alternative flood
control technologies.
Flood mitigation measures may operate over
service lives of 25, 50 or 100 years, depending on the nature of the measure.
Typically, a service life of 100 years can be assumed for modern concrete pipe
infrastructure (e.g., large storm sewers) or plastic pipe infrastructure (e.g.,
plastic wastewater sewers or plastic lined concrete wastewater sewers or
plastic underground storage devices such as arched modular tanks). Ottawa’s
State of the Asset Report indicates an expected service life of roughly 100
years for concrete wastewater pipes (City of Ottawa, 2017) and Markham’s Asset
Management Plan adopted a 100 year service life for concrete and PVC storm
sewer pipes (City of Markham, 2016). A service life of 25 years can be assumed
for green infrastructure surface features such as rain gardens that would
require reconstruction/full refurbishment after 25 years – research presented Sustainable
Technologies Evaluation Program (STEP) report titled Assessment of Life Cycle
Costs for Low Impact Development Stormwater Management Practices indicates a
life span of 25 years for bioretention measures, 30 years for permeable
interlocking concrete pavement, and over 50 years for infiltration trenches and
chambers (Toronto and Region Conservation Authority and University of Toronto,
2013).
Green infrastructure operation may result
in adverse impacts to infrastructure and properties due to infiltration. Infiltration can worse sewer back-up and
seepage damages, as basement flooding insurance risks in Markham have shown a
strong quantitative correlation to sanitary sewer infiltration risk factors. Infiltration may also lower soil resistivity due
to the presence of chlorides and accelerate deterioration of watermains. These adverse impacts are not quantified in
the analysis but may lessen the effectiveness of green infrastructure
strategies that mitigate surface flow stresses while aggravating subsurface
ones.
Watershed Restoration Benefits (Water Quality and
Erosion Mitigation)
Infrastructure improvements can yield a
variety of benefits beyond direct, tangible flood damage reduction. Grey infrastructure upgrade projects that
increase stormwater conveyance capacity, such as within the Markham Flood
Control Program, can incorporate water quality improvement measures such as oil
and grit separators to achieve other benefits. Activities that increase
sanitary capacity and decrease extraneous flow stresses, such as sanitary
downspout and foundation drain disconnection programs, can reduce the risk of
wastewater overflows during rare, extreme events. These secondary benefits are considered to be
small in relation to primary flood control benefits and are not quantified
here.
Green infrastructure measures can improve
water quality and alter the water balance, reducing runoff volumes and erosion
stresses in receiving watercourses, contributing to habitat restoration or enhancement. The
willingness to pay for surface water quality improvements due to green
infrastructure source controls has been estimated by two methods in an
evaluation of Rouge River watershed source controls (Marbek, 2010). Values have
been estimated to be $52.35 and $141.32 per person per year in 2010 and 2007
studies, which is approximately $61.37 to $175.71 in 2018 dollars, adjusting
for 2% inflation a year. The average value is approximately $119 per person per
year in 2018 dollars. This value may be factored by the population of Markham
of 329,000 to yield a willingness to pay for surface water quality of $39.2 M
per year. This estimated benefit is noted to be several times greater than the
flood damage reduction benefit presented later, which warrants discussion on
validity, and practicality for funding (see Conclusions). (That is, it ought to be subject to a test of
its reasonability in this context.)
The
benefit of erosion stress reduction due to lower runoff volumes may not be
readily assessed given the stochastic and dynamic nature of erosion processes.
Furthermore, runoff volume reductions may not be sufficient to stabilize
erosion processes in watersheds that are highly urbanized or lessen restoration
activities where infrastructure design and land use practices have put asset
and property at risk even under natural erosion conditions (e.g., encroaching
on natural meander belt widths of watercourses). The annual cost of Markham’s
erosion restoration program is $1.2 M.
Assuming (perhaps overly optimistically) that half of this cost could be
avoided or deferred through water balance alteration, annual benefits of $0.6 M
could be achieved.
Other Triple-Bottom-Line (TBL) Benefits
Analysis of a broad range of benefits of
green infrastructure measures have been pursued recently including as part of
insurance industry research noted earlier (Moudrak et al., 2018). Benefits estimated as part of the development
of municipal infrastructure strategies have included air pollution and carbon
reduced by vegetation, heat island effect reduction, property value increase,
recreational value increase, and economic water quality benefits, such as in
The Green First Plan in Pittsburgh (Mott McDonald, 2016). In that evaluation, all non-flood benefits
represented 17% to 27% of flood control benefits with over half of those non-flood
benefits being due to property value increase. Economic water quality benefits varied from
1.5% to 3.1% of flood benefits.
Flood
Risk Mitigation and Watershed Restoration Lifecycle Costs
The lifecycle cost of grey and green
infrastructure to achieve flood reduction and other benefits can be estimated
using historical project capital costs and projections of system-wide program
capital costs. Operation and maintenance costs may be based on ongoing program
costs, expressed on a unit area basis. Total lifecycle costs must also consider
the depreciation of infrastructure assets based on periodic
rehabilitation/restoration and end of service life replacement.
Capital costs for Markham’s Flood Control
Program include a range of low-cost programs and best practices focused on
immediate risk reduction (e.g., sanitary downspout disconnection, private
plumbing protection with backwater valves/sump pumps), as well as higher-cost,
long-term storm and sanitary infrastructure capacity upgrades. The cost of programs and best practices is relatively
minor and is estimated at $3 M which equates to approximately $1,300 per
hectare (i.e., considering approximately 2,360 hectares of pre-1980 serviced
land exhibiting higher flood risk due to historical design standard limitations
such as partially-separated sewers with foundation drain connections to the sanitary
sewer system, and limited dual drainage and/or major overland flow design). Sanitary
system upgrades are estimated at $26 M (2016 dollars) based on the current
draft Master Plan that identified upgrades for 1.5% of the sanitary collection
system to meet a 100-year level of service against basement flooding, and to prevent
sewer surcharging during 25-year storm events.
This amounts to approximately $11,000 per hectare. The cost of storm system
upgrades is based on constructed and planned construction projects and is
updated periodically to set ‘Stormwater Fee’ rates for property owners – these
have been estimated at $234 M for storm system upgrades (2015 dollars) and
include internal staffing costs to implement the program, as well as all
external design, contract administration and construction costs, expressed in
2014 dollars. The total storm and sanitary system upgrade costs of approximately
$260 M equates to 5.9% of storm and sanitary system asset values based on the
city's Asset Management Plan ($2,075 M in wastewater assets, $2,335 M in
storm water assets). Accounting for inflation of 2% per year, the storm capital
cost is approximately $253 M in 2018 dollars, and sanitary capital costs
are $27 M in 2018 dollars, resulting in a total program cost of $283 M
(including $3 M for the City’s Flood Control Program, as noted earlier). This
amounts to approximately $120,000 per hectare.
Operation and maintenance costs for storm
and sanitary infrastructure include periodic inspection such as CCTV inspection
and a range of minor repair activities including flushing, debris and calcite
removal, and local repairs of deteriorated pipe, joints and connections. The
net impact on operation and maintenance activities is assumed to be nil for
grey infrastructure where capacity upgrades replace existing infrastructure
that already undergoes these activities. Some minor net benefits can result
from sewer upgrade activities given that replaced infrastructure is
consistently over 50 years old and was installed using less robust design and
construction standards. Upgraded grey infrastructure is expected to have lower
operation and maintenance costs for repairs (i.e., due to new higher standards
for bedding, joints, connections, material, etc.) and have lower infiltration
stresses for upgraded sanitary mainlines, maintenance holes and laterals,
lowering pumping and treatment costs (in addition to deferring or avoiding
capacity expansion costs). In some cases grey infrastructure capacity upgrades
also provide other additional benefits, supporting long term growth where
service capacity is limited, and addressing existing operational issues (e.g.,
improving longitudinal slopes to improve self-flushing and reduce debris
build-up). In addition, water supply upgrades such as the replacement of
cast-iron watermains may also be completed concurrently with sewer upgrades,
resulting in capital cost savings of approximately 25% ($150/m), operating cost
savings through leak reduction, and improved service reliability and lower
emergency repair costs (i.e., fewer main breaks). These grey infrastructure
benefits are not included in this analysis.
Depreciation of grey infrastructure is
assumed to occur uniformly over the service life and can be expressed as an
annualized value based on a percentage of the initial capital cost. For
example, assets with a 100-year service life are assumed to depreciate 1% of
initial capital cost each year. This annual depreciation is $1,200/hectare/year,
or $2.83 M per year over the 2,360 hectare study area.
Green infrastructure capital costs have
been estimated based on several sources including i) recently constructed
projects in the City of Markham and across Ontario, representing 24 projects
with an average cost of $575,000 per total hectare (Muir, 2018a), ii) 1100 projects
in the City of Philadelphia’s Clean Water Pilot with budget costs of $568,000
per hectare and median construction costs of $872,000 per impervious hectare in
2015 dollars (Muir, 2018b), and iii) 127 projects in Onondaga County, New York
with average construction cost excluding green roof projects of $783,000 per impervious
hectare (Muir, 2018b). Adjusting for inflation, assumed to be 2% per year, a capital
cost per hectare of $603,000 per hectare in 2018 dollars is used herein, considering
Philadelphia’s extensive dataset. This reflects storage volumes of 1 to 2
inches (25 to 50 mm) for combined sewer overflow (CSO) control (and are used
herein to estimate costs of green infrastructure to achieve watershed benefits,
excluding flood control). These costs
may also be used to estimate capital costs to achieve watershed restoration
benefits including water quality improvements and water balance alterations
that contribute to erosion mitigation It
has been estimated that green infrastructure storage capacities could be
doubled with an increase in construction costs of 14 to 27% to provide flood
control benefits (Water Environment Federation, 2015). Adding 20.5% (being the
average of the noted percentages) to the CSO control costs, the unit cost for
providing flood control would thus be estimated at $726,000 per hectare.
Operation and maintenance costs for green
infrastructure have been estimated based on actual Philadelphia program costs
considering a range of measures including bump-out, bump-out and storage
trench, infiltration / storage trench, rain garden, subsurface basin, and tree
trench features. The annual operation and maintenance cost is $20,000 per
impervious hectare across all feature types (Muir, 2018b). The percentage
impervious coverage in Markham has been measured to be 44% in 1999 and
infill/expansion of up to 2017 based on orthophoto digitization suggest an
overall impervious percentage of 50% (City of Markham, 2018a). The annual
operation and maintenance cost is $10,000 per total hectare per year
considering that imperviousness ratio.
Depreciation of green infrastructure is also
assumed to occur uniformly over the service life and can be expressed as an
annualized value based on a percentage of the initial capital cost. For this
analysis, assets are assumed to have a range of service life durations with one
third having a 25-year, one third having a 50-year, and one third having a
100-year service life, with depreciation of 4%, 2% and 1% of initial capital
cost each year, respectively. With a
blended depreciation rate of 2.33% and capital cost of $603,000 per hectare for
watershed restoration, the depreciation cost is $14,100/hectare/year. Meanwhile with a capital cost of $726,000/hectare,
the depreciation cost for flood control is $17,000/hectare/year.
It is noted that
the cost figures from US sources have not been adjusted to account for exchange
rate differences and, as such, may somewhat underestimate costs for green
infrastructure based on the prevailing currency exchange rates during the
period of those studies and at the time of writing.
Benefit-Cost
Ratio for Urban Flood Mitigation
The benefit-cost ratio characterizes the
economic efficiency of a flood control project or strategy. Estimated ratios may be used to compare
projects and strategies and may also be compared against other industry
thresholds. Infrastructure Canada’s DMAF expects that projects will achieve a
benefit-cost ratio of 2:1 (2018), while a ratio of 1.3:1 has been suggested for
the investment of public funds for flood mitigation projects (Watt, 1989;
Eckstein, 1958). The benefit-cost analysis approach described herein was
followed as part of the City of Markham’s recent DMAF funding application to
demonstrate a favourable ratio for ongoing projects within its city-wide Flood
Control Program.
The discounting of future costs and
benefits is typically done to reflect the time value of money and to express
both costs and benefits as cumulative present values, or a net present value,
expressed in constant dollars. Watt (1989) has suggested “the appropriate
interest rate is the rate at which governments and public utilities can borrow
capital in the open market” and cited the Treasury Board’s recommendation to
use real, as opposed to nominal rates. Currently
Infrastructure Ontario’s borrowing rates range from 2.7% to 3.6% for
amortization periods of 5 to 30 years, respectively (Infrastructure Ontario,
2019). In the case of Markham’s Flood
Control Program, costs are funded through reserves such that the discount rate
is an opportunity cost equivalent to the City’s investment earning rate, as
opposed to a borrowing rate. The City’s third quarter investment review (2018b)
cites a budget average rate of return of 2.55% and an actual return of 3.23%
which is in line with Statistics Canada’s (2018) most recently published
Ontario year-over-year inflation rate of 3.1%. Consequently the real rate,
adjusted for inflation, is essentially nil and therefore no discounting of
benefits and costs is included in this analysis. That said, this analysis may be further
expanded to more fully consider the effects of such discounting and, perhaps
more interestingly, the sensitivity of its results to varying discount rates;
nevertheless, it is beyond the scope of this particular work.
Benefit-Cost
Ratio for Watershed Restoration
and Indirect Triple-Bottom-Line
The evaluation of infrastructure
strategies and projects in Ontario, with only rare exceptions, does not
quantitatively assess the economics of environmental benefits. That is, strategies
for CSO reduction in wastewater systems are advanced to meet standards like
Procedure F-5-5 for volumetric control (MECP, undated), and projects to advance
surface water quality control are advanced to meet generic sizing volumes that
target treatment efficiencies (MECP, 2003), but not to meet any receiving water
outcomes that could be evaluated for benefits.
The benefit-cost ratios attributed to
water quality improvements and erosion mitigation, both key outcomes of green
infrastructure implementation, are assessed in the analysis below. The ratios are compared with flood damage
reduction ratios to assess the relative contribution of various benefit types (i.e.,
flood, erosion, water quality) toward the overall strategy benefits (and to
assess reasonability).
RESULTS
Ontario and City of Markham Expected Flood Damages
and Benefits
A Gumbel statistical distribution of Ontario
water damage losses presented in Figure 1 was created using data from the year
2000 to 2017 to estimate EAD for the Ontario region. Earlier data was not used
given that the losses appear to be non-stationary (i.e., losses are increasing,
and the exclusion of this data will result in higher benefit values). From this
distribution, the 2-year losses are $146 M while the 100-year losses are $1.16
B, reflecting the wide range in annual damages for typical and rare conditions. Integrating across all probabilities, the EAD
(insured losses and loss adjustments) for the recent period is $292 M in
Ontario, which represents 46% of Canada-wide water damage losses.
The local EAD estimate for the City of
Markham has been scaled based on population. That is, Markham losses are 2.45%
of Ontario losses based on a Markham/Ontario population ratio of 329,000 /
13,448,000. Population is considered to be a suitable scaling factor for scaling
economic data given recent analysis by the Conference Board of Canada for York
Region. Using elaborate analysis, the Board determined that the Markham GDP was
$19.3 B in 2018, compared to an Ontario GDP of $825.8 B - the Markham/Ontario
GDP ratio was found to be 2.33%, which is quite similar to the population
ratio, indicating that it is a suitable scaling factor (Markham, 2019). The
Markham insured EAD is therefore estimated to be $7.13 M, or 2.45% of Ontario
insured losses, based on the population ratio. In municipalities characterized
by extensive newer, lower-risk development, or extensive older, higher-risk development,
scaling of EAD may be based on areas or other factors.
As noted in the Methodology section, EAD derived
from insured losses is assumed to represent benefits of averted damages,
recognizing that total losses exceed insured losses and that municipal
infrastructure works and property protection measures only partially avert
potential damages.
Lifecycle
Costs for Flood Mitigation and Watershed Restoration
The lifecycle costs for grey and green infrastructure strategies in
Markham are summarized in Table 1.
TABLE 1. CITY OF MARKHAM LIFECYCLE COSTS
Strategy
- Infrastructure Type
|
Area
Controlled
|
Capital
Depreci-ation ($/ha/yr)
|
Net
O&M
($/ha/yr)
|
Total
($M/yr)
|
A – Grey (Storm/Sanitary Upgrades)
|
2360 ha (25%)
|
1,200
|
-
|
2.83
|
B – Green (25-50 mm Volume City-wide)
|
9450 ha (100%)
|
14,100
|
10,000
|
228
|
C – Green (> 50 mm Volume, Pre-1980
Areas)
|
2360 ha (25%)
|
17,000
|
10,000
|
63.7
|
D – Grey 90% / Green 10% (Pre-1980 Areas)
|
Grey
|
2124 ha
(22.5%)
|
1,200
|
-
|
2.55
|
Green
|
236 ha
(2.5%)
|
17,000
|
10,000
|
6.37
|
Total
|
2360 ha (25%)
|
n/a
|
n/a
|
8.92
|
Benefit-Cost
Ratio of Grey and Green Infrastructure Strategies for Flood Mitigation and
Watershed Restoration
Table
2 summarizes annual lifecycle costs and annual benefits for i) flood damage reduction,
ii) estimated willingness to pay for water quality improvements, and iii)
potential erosion restoration reduction benefits for various infrastructure
scenarios. The ratio of benefits and
costs for each benefit type as well as total benefit-cost ratio is shown.
TABLE 2.
BENEFIT-COST RATIOS FOR FLOOD MITIGATION AND WATERSHED RESTORATION
1 Flood damage reduction
benefits estimated at 50% of EAD.
2 Water quality and erosion
benefits estimated at 25% of city-wide benefits.
3 Water quality and erosion
benefits estimated at 2.5% of city-wide benefits.
CONCLUSIONS
A
top-down approach to assessing flood damages based on the statistical analysis
of reported losses is an efficient means of estimating the benefits associated
with avoided (or averted) damages resulting from infrastructure
strategies. Losses reported at a
regional scale, like Ontario, may be readily scaled to assess losses and
benefits related to urban flooding on a city-wide scale. While not illustrated here, such losses have
be scaled further to assess benefits at an individual project level within Markham’s
overall Flood Control Program. Averted damage benefits due to infrastructure
investments are not readily available but have been estimated to be equivalent
to reported loss and loss adjustment expenses, which is a fraction of total
insured and uninsured damages. These benefits
may be assessed without individual property-scale evaluations (e.g., using
depth-damage curves and local vulnerability assessments) that are typically
only available for detailed infrastructure project assessments. While benefits considered here may be
increased to account for other averted indirect damages (e.g., lost work, etc.)
or broader social and environmental benefits, these are considered to be minor
in relation to direct flood damages (Watt, 1989; Mott McDonald, 2016).
The
results of this analysis suggest that there can be an extremely large gap in
economic performance between green and grey infrastructure solutions, with the
latter providing returns on investment that can be up to two orders of magnitude
higher than the former. A grey infrastructure approach (Strategy A) appears to
satisfy the industry thresholds for economic efficiency with over 2 dollars of direct
benefits for each infrastructure dollar invested. However, the benefit-cost ratio estimates for
green infrastructure approaches (e.g., Strategies B and C) appear to be significantly
below thresholds, such that costs exceed benefits, even when sizeable intangible
benefits for water quality improvement, are assigned. While the green infrastructure benefit-cost
performance improves under a focused implementation with higher capacity works
in pre-1980 areas to maximize flood control benefits, costs still exceed
benefits by almost 4:1, omitting infiltration impacts which could lower net benefits.
This unfavourable economic efficiency for focused green infrastructure
implementation is achieved even with a very generous willingness to pay value
for water quality improvements – those benefits exceed flood damage reduction
benefits and may not practically receive public acceptance when seeking
funding, considering overall municipal tax or fee impacts. A blended approach (Strategy
D) that combines grey and very localized green infrastructure across only 2.5%
of the city (10% of pre-1980’s) improves the economic efficiency such that the benefit-cost
ratio approaches unity, albeit at a three times higher cost and a third of the
efficiency of a 100% grey approach (Strategy A).
This particular analysis which, to be
clear, is an early step in the development of a more comprehensive method of
assessing project benefits and costs, and it is certainly not intended to
provide a universal, generalized solution.
Its results suggest that appropriately comprehensive economic analyses
are warranted to help analysts and decision makers assess infrastructure
investment options. Moreover, the development of broad-reaching water
management policies (e.g., at the provincial level) on how to implement green
infrastructure solutions, or on how to prioritize funding (e.g., at a federal
level), cannot be sensibly conducted in the absence of such considerations.
Finally, it is suggested that the development of guidance documents to support
the assessment of green and grey infrastructure options from both the technical
and economic perspectives, as now being pursued by National Research Council Canada
(NRC), would be a valuable addition to industry practices to help harmonize the
industry’s perception and understanding of these matters as well as the
application of such assessments.
Additional effort is needed to: (i) appropriately enumerate all the
potential benefits and costs (whether they be categorized as direct or
indirect, tangible or intangible) associated with alternative infrastructure
solutions (whether they be categorized as green or grey, or simply
infrastructure options); and (ii) to sensibly quantify the value of those
indirect and intangible benefits and costs such that they are appropriately
representative and meet tests of reasonability relative to other, directly and
tangible, benefits and costs. To the
extent possible, rhetoric should not form the basis of value estimation, but
rather should be replaced with reasonable estimations and, to this end,
uncertainty analysis may assist in forming an integral part of a fully
comprehensive assessment of benefits and costs.
BILBIOGRAPHY
Eckstein,
O. (1958) Water-Resource Development – The Economics of Project Evaluation,
Harvard University Press. p.112, p.126
Muir, R. (2018d) Is green infrastructure
an effective adaptation measure to climate change in old and new developments?
National Research Council Workshop on adaptation to climate change impact on
Urban / rural storm flooding February 27, 2018.
Municipal Engineers Association (2015)
Municipal Class Environmental Assessment (MCEA), October 2000, as amended in
2007, 2011 & 2015. http://www.municipalclassea.ca/
Ontario Ministry
of Economic Development, Job Creation and Trade (MED) (2017) Infrastructure for
Jobs and Prosperity Act, 2015, S.O. 2015, c. 15, O. Reg. 588/17: Asset
Management Planning for Municipal Infrastructure.
https://www.ontario.ca/laws/regulation/r17588
Watt, E. (Ed.) (1989) Hydrology of Floods in
Canada, A Guide to Planning and Design. National Research Council Canada.
http://nparc.nrc-cnrc.gc.ca/eng/view/accepted/?id=7b18d8c9-6c5f-425f-8338-ac4a24f8170b
